Correlation Between Solar Alliance and Chatham Rock

Can any of the company-specific risk be diversified away by investing in both Solar Alliance and Chatham Rock at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Solar Alliance and Chatham Rock into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Solar Alliance Energy and Chatham Rock Phosphate, you can compare the effects of market volatilities on Solar Alliance and Chatham Rock and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Solar Alliance with a short position of Chatham Rock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solar Alliance and Chatham Rock.

Diversification Opportunities for Solar Alliance and Chatham Rock

0.09

Correlation Coefficient

Solar Alliance  Chatham Rock

Significant diversification

The 3 months correlation between Solar and Chatham is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Solar Alliance Energy and Chatham Rock Phosphate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham Rock Phosphate and Solar Alliance is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Solar Alliance Energy are associated (or correlated) with Chatham Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Rock Phosphate has no effect on the direction of Solar Alliance i.e., Solar Alliance and Chatham Rock go up and down completely randomly.

Pair Corralation between Solar Alliance and Chatham Rock

Assuming the 90 days trading horizon Solar Alliance Energy is not expected to generate positive returns. However, Solar Alliance Energy is 1.02 times less risky than Chatham Rock. It waists most of its returns potential to compensate for thr risk taken. Chatham Rock is generating about 0.08 per unit of risk. If you would invest  6.00  in Chatham Rock Phosphate on December 30, 2024 and sell it today you would earn a total of  1.00  from holding Chatham Rock Phosphate or generate 16.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Solar Alliance Energy  vs.  Chatham Rock Phosphate

Solar Alliance Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Solar Alliance is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chatham Rock Phosphate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Rock Phosphate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chatham Rock showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solar Alliance and Chatham Rock

The main advantage of trading using opposite Solar Alliance and Chatham Rock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solar Alliance position performs unexpectedly, Chatham Rock can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Chatham Rock will offset losses from the drop in Chatham Rock's long position.

The idea behind Solar Alliance Energy and Chatham Rock Phosphate pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.